The central bank of Nigeria through it’s recent policy directives to banks in Nigeria says tough times await chronic loan defaulters.
It was a busy Tuesday afternoon in Lagos. Business executives and entrepreneurs were rushing to beat the usual traffic jam on the Third Mainland Bridge, which separates the Lagos mainland from the Island.
For Silas Stevens, Managing Director/CEO,Blueday Merchants Limited, getting to his banker at Ikoyi, Lagos before 10. am was a priority for two reasons.
He needed to discuss the N2 million un-authorised debit on his account the previous day. Next, he planned to stop his clients from making further payment into the account till further notice. Stevens is one of the several business owners whose accounts were flagged by the Central Bank of Nigeria (CBN) for borrowing and not being able to meet loan payback conditions.
The CBN had last year taken major step to get bad debtors pay back or be sanctioned in line with the Global Standing Instruction (GSI) that permits funds to be seized in banks across the country.
“For five months, we could not even open our office and there were salaries to pay. As we speak, we have still not started business fully. It’s a trying time for us because the interest on the loans have not been suspended and the tenor of the facility has elapsed.That’s why we have not been able to pay back the loans,” he said.
FBN Holdings Plc, United Bank for Africa Plc and Zenith Bank Plc expanded their loan books by the equivalent of about $1 billion to dodge heavy penalties from the CBN, S&P Global Market Intelligence, calculations have showed.
Analysts said many banks expanded their loan base following the CBN’s directive that they lend at least 65 per cent of their deposits to customers in a new Loan to Deposit Ratio (LDR) plan or be sanctioned through restriction on their deposits.
Many of the loans have since gone bad and the banks are relying on the GSI policy instituted by the CBN to recover their funds despite losses caused to businesses by the COVID-19 pandemic.
But the CBN insists that borrowers must pay back. “The CBN will not allow people to borrow money and refuse to pay again. That era has gone. If you take money, you will pay back the loan. If you borrow money and refuse to pay, we will take your money wherever you are keeping it,” CBN Governor, Godwin Emefiele said.
Macro Economics Strategist at Afrinvest West Africa Limited, Adedayo Bakare, said the NPLs will continue to rise. “We expect that the NPLs will rise further between 2021 and 2022, and the CBN is even trying to recapitalise the banks to enable them absorb the likely shock from the NPLs rise. As the banks do more lending, they are also aware that the risks are still very high, as much as possible,” he said.
CBN Director, Financial Policy & Regulations, Kelvin Amigo, said the operationalisation of the exercise required borrowers to sign a GSI mandate in hard copy or digital form, after which all qualifying accounts are linked to the borrower’s Bank Verification Number (BVN).
“The GSI mandate form authorises the recovery of an amount specified by the bank from any/all accounts maintained by the borrower across all financial institutions.The GSI empowers banks and other financial institutions to debit accounts of chronic loan defaulters in any bank within the country to ease NPLs growth in the country,” he said.
Amugo said banks recovered N50 million bad loans from debtors in the first week of GSI implementation.
“The CBN’s move to force banks to lend more is significant because over the past two years we’ve seen banks develop apathy in terms of credit creation, which has hampered domestic economic growth,” said
“GSI is what we have been looking forward to as a coordinated approach to addressing the NPL issue in the banking industry.
“You will agree with me that banks’ failure is not ordained, it’s just the behaviour of what we have. So, culture is a very big issue to credit; we need to address it,” he said.
President, Chartered Institute of Bankers of Nigeria, Bayo Olugbemi, said the scourge of bad loans had been a long-standing menace to the banking sector.
According to him, the issuance of the GSI policy marks a new dawn in credit management and debt recovery processes in our clime.
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